It has long been assumed by the legal literati that the mere sending of a link in an e-mail or the embedding of a link in a blog post, which link directed the user to a copyrighted work of someone other than the linker, did not constitute direct infringement of the copyrighted work. However, there was very little actual case law on the subject. Last month, the federal district court for the Southern District of New York stated unequivocally that: "As a matter of law, sending an email containing a hyperlink to a site facilitating the sale of a copyrighted work does not itself constitute copyright infringement."
In Pearson Education, Inc. et al v. Ishayev and Leykina, the plaintiffs were publishing companies that sold educational material and manuals for which the plaintiffs owned the copyright. Apparently, one the defendants uploaded such material to a cloud server controlled by the defendants. Both defendants would then advertise the sale of the material. When someone bought the material, the defendants would either e-mail the purchaser a zip file with the material in it or would e-mail the purchaser a hyperlink to the file on the server, which would allow the purchaser to download the file.
The defendants filed a motion for summary judgment on several of the counts, including the allegation that the act of sending a link to a copyrighted work that allowed the receiver to illegally access the material constituted infringement.
Although most of the other stuff that the defendants did obviously was an infringement (e.g. sending the works in a zip file), the court held that merely sending a hyperlink did not amount to infringement.
The court likened a hyperlink to the "...digital equivalent of giving the recipient driving directions to another website on the Internet. A hyperlink does not itself contain any substantive content; in that important sense, a hyperlink differs from a zip file. Because hyperlinks do not themselves contain the copyrighted or protected derivative works, forwarding them does not infringe on any of a copyright owner's five exclusive rights..."
However, the court said that the result could be different if, in addition to sending the hyperlink, the defendant had actually uploaded the copyrighted material to the cloud server himself. Since the court found that there was no evidence that would allow a jury to find that one of the defendants had uploaded the material, the court granted summary judgment to that defendant on that limited issue.
Whew! So, everyone of my blog posts is safe to that extent. We won't discuss issues relating to some of the pictures.
UPDATE: Circuit Court of Appeals Reverses Decision That Use of Rutgers Quarterback's Likeness Was "Transformative". Mr. Hart Is Back "In The Game".
We noted back in October of 2011 that a District Court in New Jersey had granted EA Sport's motion for summary judgment in a suit brought by Ryan Hart, a former quarterback at Rutgers. EA Sports had used as a basis for its motion that even though the video game used Mr. Hart's likeness, including his height, weight, home town and commonly worn visor and arm bands that the mechanism of the video game allowed users to change these and as such was "transformative". If a use is found to be transformative, usually the courts will find that the user's First Amendment rights prevail over the subject's privacy rights. The District Court so found in this case and granted defendant's motion. An appeal ensued.
The Circuit Court of Appeals reversed. In a 2 to 1 decision, the Circuit Court rejected the idea that the ability to change the player's characteristics by the user rose to the level of transformative use. In fact, the appellant court held that the presence of interactivity, the ability to change the characteristics of the subject (the court noted that the player's unaltered image was the default image) and the presence of other creative elements did not tip the "balance" in favor of the First Amendment.
Thus, the granting of the motion for summary judgment was reversed and remanded for further hearings. Mr. Hart is back "In The Game".
As we all know, most intellectual property is protected by patent, copyright or trade secret or some combination of the three. Because of the expense and long lead time for patents, a lot of companies (tech and otherwise) rely on trade secret protection for the "crown jewels" of their business.
Also, as we all know, in order to have a court treat your crown jewels as trade secrets, you have to show that you treated them as such. In court speak, you have to make "reasonable efforts" to preserve the secrecy of the information. If you haven't taken such efforts, then you can't get a court to treat them as secrets. The processes that are used to document "reasonable efforts" are referred to by some as the "trade secret dance". In other words, you have to take steps to behave in a way that demonstrates your "reasonable efforts" to maintain secrecy. We have discussed this before (see here and here).
A court in Connecticut reaffirmed this requirement recently in the aerospace industry when it found that a company had not taken such reasonable efforts to protect its rubber injection molds, the injection apparatus and the company's prices and hence, could not get an injunction against a competitor to prohibit such competitor from using similar information.
The court cited the company's practice of conducting tours of the facility for the public and even competitors in which the participants in the tours were afforded unrestricted views of the molds and the machines from as close as six feet. The process was explained and at no time were the participants in the tours notified that anything they saw was confidential nor were they obligated to sign any confidentiality agreements. It was apparently also common practice for the company to quote prices for their products to anybody that asked without any indication that the prices were confidential.
For this and other reasons, the court found that the company had not taken reasonable efforts and declined to grant an injunction in their favor. This was most unfortunate for the company as it was in bankruptcy, which it claimed was due in large part to its loss of the trade secrets.
This is not a groundbreaking or shocking opinion and is in line with established trade secret law but it does reaffirm for all of us that are counting on trade secret law to protect our stuff, we better make sure that we keep our stuff secret. This starts with doing an intellectual property inventory and continues through the establishment of a intellectual property protection program that must include as a very important component, a trace secret protection process (i.e. the dance).
Court Becomes "Particular" About First Sale Doctrine and Therefore You Can Never Resell Your Digital Music.
I'm an old guy. One of the first musical purchases I ever made was a 45 rpm (that's revolutions per minute for those of you that have never seen a phonograph) recording of Bobby Vee's "The Night Has A Thousand Eyes". If I still had that physical record, I could sell it to you without fear of violating anyone's copyright because of a little something called the "first sale" doctrine. We have mentioned that several times in this blog (see here, here and here). The first sale doctrine says that after the first sale of a copyrighted work, the copyright holder loses its right to restrict further sales. This is the reason that stores that sell used books, records, CDs, DVDs, etc. can exist.
Now, if I could find that particular song on ITunes, I could buy it, download it to my computer or MP3 player and listen to it all I want. If I tired of that, I could use the services of a company called ReDigi. In doing that, I would download an application called Media Manager and then use that to upload the digital file of the recording to ReDigi's remote server in Arizona, which they call the "Cloud Locker". Media Manager then prowls the hard drive of my computer and connected devices to determine if I have retained a copy. If it detects one, it prompts me to delete it. When that happens, only one copy of this particular recording exists and it exists only on the Cloud Locker. I then can either continue to listen to it from the Cloud Locker or I can opt to sell it. If I opt to sell it, ReDigi makes it impossible for me to continue to listen to it. So, now I can use ReDigi to sell that particular recording to you. The exchange is made for credits that you can get by uploading other music. When it is transferred to you (automatically, without human intervention by ReDigi), you can store it, stream it, sell it or download it to one of your devices to listen to it.
In both instances, the result is the same. I bought a copy of "The Night Has A Thousand Eyes" legally. I have transferred it to you. I no longer have a copy. I can't sell it again.
Cool, right? Everybody's happy. I can buy more music with my credits. You are in possession of a great piece of nostalgia and I have no more copies to sell to undercut the copyright holder's income stream. The Southern District of New York says: "Not so fast, my friend".
In a case styled Capitol Records, LLC v. ReDigi Inc., the court held that the first sale doctrine can not apply to non-physical (i.e. digital) recordings.
The First Sale Doctrine is codified in Section 109(a) of the Copyright Act and states in pertinent part: "...the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord."
The Court held that ReDigi had several problems under this provision. First, it said that ReDigi had violated Capitol's reproduction rights (another right under the Copyright Act), therefore it was not "lawfully made under this title". The Court also said that the Act only protects distribution by the owner of a particular copy or phonorecord...of that copy or phonorecord". (Emphasis added by Court). So, the transfer of the files requires copying on ReDigi's server, which violates the reproduction rights and because the sale is not a sale of that particular copy, the first sale doctrine does not provide a defense. The Court specifically said that the first sale defense is limited to "physical" items. To comply with this, you would have to sell and transfer your computer or MP3 player with the file on it.
This ruling was part of an opinion resulting from Capitol's Motion For Summary Judgment and other matters still remain to be decided, but the Court left little doubt about where it stood on this issue.
Are Confidentiality Provisions and I.P. Assignment Clauses In Employee Agreements To Be Treated Like Non-Compete Provisions? South Carolina Supreme Court Says No.
Almost every technology company of any variety has a couple of standard provisions in the documents that their employees sign as part of the employment on-boarding process. Those are, of course, provisions that require the employee not to divulge certain information that they learn as a result of their employment and that provide that any intellectual property developed by the employee during the employment (and often for a period thereafter) and based on information provided by the employer, belongs to the employer. Some agreements also contain non-compete provisions, which purport to prohibit the employee from engaging in certain kinds of employment activity after the present gig ends.
Mr. Morin went to work for Milliken & Company in South Carolina as a research physicist and worked for Milliken for nine years developing fibers. Apparently, Mr. Morin began to make plans for his own company prior to leaving the employee of Milliken and filed for a patent on a new fiber within a few months after resigning from Milliken. Milliken thought such behavior was untoward and filed a suit against Mr. Morin for breach of the confidentiality provisions and the breach of invention assignment provisions in his employee contract, among other things.
The appeal of this case recently found its way to the Supreme Court of South Carolina. One of Mr. Morin's principal arguments was that the confidentiality provisions and the assignment of inventions provision were restraints of trade and as such, should be reviewed under the same standard as a non-compete provision, i.e. not favored by the courts and construed against the employer unless certain very stringent requirement were met.
The South Carolina Supreme Court disagreed with Mr. Morin and found that such provisions (confidentiality and invention assignment) were not restraints of trade and as such, were to be reviewed under the reasonableness standard, i.e. to be enforced as an ordinary contract provision unless the provisions exceeded what was necessary to protect the legitimate interests of the employer. The court held: "We therefore hold confidentiality and invention assignment clauses are not in restraint of trade and should not be strictly construed in favor of the employee."
This confirms what most of us in this industry believed to be the law and should make it easier for well crafted provisions of this nature to be enforced in the future.
Here's the scenario: You have an open WiFi (i.e. no password required), someone (maybe you, maybe not), uses that IP address to download a copyright work, someone (probably a copyright troll) sends a subpoena to your internet service provider and finds that this happened, you receive a letter from a copyright troll attorney that says in basic terms: "You are a horrible person. A copyright protected work was illegally downloaded using your IP address. It was entitled something that included "hot", "wet" and a bodily orifice in the title. You should be ashamed and if you pay me $3,000 now, it will all go away and your wife/girlfriend/scout troop/sunday school class will never know. Otherwise, we can sue you for negligence because your WiFi was not protected and we don't even have to prove you did the download."
Maybe this comes as a huge surprise to you, maybe it doesn't. However, will the negligence claim fly and allow the trolls to tag you with liability even if they can't prove you actually did it? A couple of courts have said no. Last week the U.S. District Court for Northern California in a case styled AF Holdings LLC v. John Doe and Josh Hatfield held that the mere inaction of not protecting your WiFi was not negligence because the defendant did not owe a duty to the plaintiff to take an affirmative action to protect the plaintiff's intellectual property. In addition, the court held that this was still a copyright case and state law of negligence was preempted by the federal copyright statute. And to further make a point, the court found immunity for the defendant under Section 230 of the Communications Decency Act.
So, it seems to be the trending opinion that you aren't strictly liable for contributory infringement for just leaving your WiFi open. Seems right to me.
Remember a week or so ago when we reported that Google had violated Oracle's copyrights but the jury couldn't decide on fair use so that was left to the judge. They then proceeded to the patent phase of the suit and lo and behold, the jury has found no patent infringement by Google. The judge has told the jury to go home. No billions for Oracle.
Oracle is now left with having the judge decide the copyright issue on such protection for application program interfaces (APIs).
Oracle may wear the collar in this game.
Avid followers of this blog will clearly remember our discussion of the initial filing of the lawsuit involving the clash of the Larrys (i.e. Ellison [Oracle] and Page [Google]). For a quick refresher, Oracle claimed that Google infringed on Oracle's Java related intellectual property (which Oracle obtained by buying Sun) by, among other things, violating some patents and copying application program interfaces ("API") in the development of the Android operating system. There has been some question as to whether APIs are subject to protection by copyright but Oracle claims that the ones in Java are sufficiently complex that they should be protected. A recent case in Europe has held the other way.
The jury in this case held that Google did violate Oracle's copyrights but could not reach a decision as to whether the use was "fair use", a defense under the copyright act. Therefore, this is not very conclusive. The case is divided into three phases and this was the end of the first phase. The case went directly into the patent phase of the case and the subsequent phase will be the damages phase. So, a lot of work to do until this is finally decided but it is evident that this will have far reaching effects however it comes out.
PissedConsumer.com is a website that encourages consumers to complain about companies and products. When a complaint is lodged, PissedConsumer creates subdomains and metatags using the name of the product or company complained about in the name, e.g. productname.com/titleofpostedcomplaint.html. PissedConsumer then uses a third party to post advertisements on the complaint pages for competitors of the product or company complained about. Opinion Corp. is the company that owns and manages PissedConsumer.com. As an additional service, Opinion Corp. offers to help remedy the negative impact of the complaints in a number of ways and for a substantial amount of money.
Ascentive, LLC (software company) and Classic Brands, LLC (mattress manufacturers) were the victims of negative comments on PissedConsumer.com and separately brought suit against Opinion Corp. and some of its officers individually. Their suits were consolidated for the purpose of this action.
The plaintiffs (Ascentive and Classic Brands) alleged a number of causes of action, including a request for a preliminary injunction to disable the offending pages, counts under the Lanham Act and counts under the Racketeer Influenced and Corrupt Organizations Act ("RICO").
The counts under the Lanham Act centered around the plaintiffs' claims that the use of their trademarks in the subdomains and in metatags constituted trademark infringement, unfair competition and false designation of origin.
For the RICO allegations, they allege that the defendant's "Reputation Management Services", which allow companies (for a large fee) to respond to the reviews and alter the format in which the reviews appear were tantamount to bribery and extortion prohibited by the RICO Act.
The Court applied the preliminary injunction standard, which requires that such an injunction issue only if the plaintiffs have demonstrated a likelihood of success on the merits.
Applying this standard to the facts, this Court found that there was no likelihood of confusion as any reasonable user would understand that this was a gripe site and not a competing site and that the use of plaintiffs' marks as described did not result in such confusion. In addition, the defendant plead that they were insulated from liability under Section 230 of the Communications Decency Act because they were an "interactive computer service" and therefore not liable for the defamatory comments of their users. The Court agreed.
Consequently, the Court found that the plaintiffs had not demonstrated a likelihood of success and denied the motion for preliminary injunction even though the Court expressed some uneasiness about the defendant's business practices and ethics, e.g. eliciting (some say creating) complaints, advertising such complaints, engaging in search engine optimization to cause the complaints to appear higher in the search rankings and then charging fees to cure the situation they had created. "Ethical obligations that exist but cannot be enforced are ghosts that are seen in the law but that are elusive to the grasp." Lyrical, but little consolation to the plaintiffs.
Two recent decisions have provided context for the DMCA's "safe harbor" provisions and have given an expansive reading to such provisions.
In the Ninth Circuit Court of Appeals, the decision in a case called UMG v. Veoh (even though there are dozens of parties) has affirmed a district court's decision that a video sharing site (Veoh) qualified for the safe harbor provisions and therefore was not liable for copyright infringement. This case was decided on December 20, 2011.
In the Southern District of New York, summary judgment was entered for Photobucket.com and the Kodak Imaging Network against Sheila Wolk, an artist that claimed that Photobucket was liable because several of her works had appeared on Photobucket. For example, see here for examples on the day this post was written. The case is styled Wolk v. Photobucket and was decided on December 21, 2011.
In UMG v. Veoh, Veoh allows people to share video content over the internet. The service is free and Veoh makes its money through related advertising.
The Digital Millennium Copyright Act ("DMCA") allows "service providers" "safe harbor protection" if the service provider: (i) does not have actual knowledge that the material on the system is infringing; (ii) is not aware of facts or circumstances from which infringing activities are apparent; (iii) upon obtaining actual knowledge acts expeditiously to remove or disable access to such infringing material; or (iv) does not receive a financial benefit in cases where the service provider has the right and ability to control such activity.
Veoh employed the standard methods of having its customers agree not to upload any infringing material and the customers give Veoh a license to use and display such material. When a video is uploaded, the software resident at Veoh's site automatically (i.e. without human intervention), breaks the video into 256 kilobytes chunks that facilitates streaming and converts the video into Flash 7 format. If the customer is a "Pro" user, the software further converts the files to Flash 8 and MPEG-4 formats. The software also extracts metadata to aid in the search function for the videos. No Veoh employees review videos before they are posted.
However, Veoh uses “hash filtering” software. When Veoh is aware of an infringing video and disables access to it, the hash filtering software automatically disables access to any identical video and prohibits any subsequently submitted duplicates. Veoh also used another filtering system that compares audio on a video to a database of copyright content and if it finds a match, the video never becomes available for viewing. After obtaining this software, Veoh applied it to their catalog of previously uploaded videos and as a result, removed more than 60,000 videos, including some that supposedly infringed on UMG’s copyrights. Despite the precautions, UMG and Veoh agree that some UMG copyrighted material is on Veoh’s site. The parties also agree that UMG never gave Veoh notice of any infringing material before UMG filed this suit.
Veoh asserted as an affirmative defense that it was entitled to protection under the safe harbor provisions of the DMCA. UMG alleged that Veoh was not entitled to such safe harbor because its activities were not “infringement of copyright by reason of the storage [of material] at the direction of a user”, that Veoh had actual knowledge of infringing acts or was “aware of facts or circumstances from which infringing activity [wa]s apparent and that Veoh “receive[d] a financial benefit directly attributable to …infringing activity” that it had the right and ability to control.
The court disagreed with UMG on all three issues.
UMG had asserted that the language required that the infringing conduct be limited to storage and that Veoh’s facilitation of access to the material went beyond “storage”. The court said the statute language was “by reason of storage” and that the language was clearly designed to cover more than “mere electronic storage lockers”. The court reasoned that if Congress had intended the safe harbor to extend only to web hosts, it would not have included the language “by reason of storage”.
The court followed a line of other cases that said that just because a defendant had been notified of some infringing activities that this put it on notice for other infringing activities. It was undisputed that Veoh removed all material for which it was put on notice and that it could identify from such notices, even though UMG had not provided any such notices.
The court further stated that the “right and ability to control” requires control over specific infringing activity that the provider knows about. “A service provider’s general right and ability to remove materials from its services is, alone, insufficient. Of course, a service provider cannot willfully bury its head in the sand to avoid obtaining such specific knowledge.” The court found that Veoh had not acted in such manner.
In the Wolk v. Photobucket case, Ms. Wolk is an artist that depends on her paintings and sculptures as her sole source of income. She alleges that Photobucket facilitates the infringing of her copyrights and is not entitled to the protections of the safe harbor.
In its analysis, the court found that Photobucket met the definition of a service provider because the court believed that the definition of service provider includes a “broad set of Internet activities”. Photobucket also had a policy that allowed copyright holders to submit a takedown notice, had made that policy available on its website and had acted to remove infringing material when given notice. It also found that Photobucket met the other requirements for safe harbor and dismissed Ms. Wolk’s pro se complaint.
Both of these cases allowed immunity from activities that go substantially beyond the mere storage of materials. Decisions of this type, which most likely accurately apply the legislative intent of the DMCA, would probably come down differently under the recently proposed SOPA legislation.
This will not be the last we’ve heard of these issues.
Here is a couple of technology law related things that happened this week and they are only marginally connected.
1. Facebook sued a site called Faceporn in a federal court in California. They are aggressive about this. See here and here. Faceporn is in Norway but uses a .com website. They also have 250 users in California and 1000 users in the U.S. Faceporm failed to file an answer and Facebook moved for default judgment. The Court denied the motion, finding that it did not have personal jurisdiction over Faceporn in that personal jurisdiction requires more than "simply registering someone else's trademark as a domain name and posting a web site on the internet". Hence, no default judgment.
2. In a recent case in Massachusetts involving the claim of copyright infringement for an adult film, the judge wondered aloud in a Footnote 2 whether there was actually any copyright protection available for a pornographic product. A couple of cases had refused to provide such protection (beginning in the early days of Broadway, see Martinetti v. Maquire, 1867) but basically on the grounds that scant dialog and nude women were not a dramatic composition and therefore not entitled to copyright protection. A 1979 case allowed for such protection because found that the concept of decency and pornography is constantly changing and "denying copyright protection to works adjudged obscene by the standards of one era would frequently result in lack of copyright protection (and thus lack of financial incentive to create) for works that later generations might consider to be not only non-obscene but even of great literary merit". It seems incongruous that porn is not entitled to any copyright protection but cases as late as 1998 found that hard core porn that was "bereft of any plot and with very little dialog" was not entitled to injunctive relief against copyright infringement.
So, lack of personal jurisdiction just because you have a .com domain and a question raised about copyright protection for pornography. How do these affect technology and law? Well, the internet issue for personal jurisdiction will continue to develop over the years, copyright issues for any medium is a hot item in technology protection and any mention of porn lights up the search engines and gets us more readers. Reasons enough?
Hard on the heels of the Doe v. SEC case discussed in the immediately preceding post, another case where anonymity is sought comes through the Northern District of California. In Art of Living Foundation v. Does 1 - 10, the plaintiff seeks the identity of one of the defendants in an action for copyright infringement, among other things.
The plaintiff is an international foundation that teaches the philosophy of Ravi Shankar, the spiritual leader, not to be confused with famed sitarist, Beatles confidant and Norah Jones' father of the same name.
One of the defendants goes by the online pseudonym of Skywalker and has been critical of the teachings of the Art of Living Foundation. In addition, Skywalker put one of the manuals used by the Foundation online. The Foundation sued Skywalker and others for defamation, copyright infringement, trade libel and misappropriation of trade secrets. The Foundation moved for a subpoena to Skywalker's blog host seeking Skywalker's identity. Skywalker, anonymously, through an attorney, moved to quash. The magistrate allowed the subpoena and Skywalker brings this appeal.
The magistrate applied the standard of Sony Music Entertainment Inc. v. Does 1 - 40, 326 F. Supp. 2d 556 (S.D.N.Y., 2004) and found that Plaintiff had alleged a prima facie case of copyright infringement due to the online publishing of the manual, the subpoenas were targeted to obtain information to identify the defendant, Plaintiff had no other means to identify Skywalker, without such identity, it would be prohibitively expensive to conduct discovery and even if Skywalker had engaged in protected speech, he had no expectation of privacy because "the First Amendment does not shield copyright infringement".
On appeal, Skywalker alleged that because his speech concerned a matter of public interest, the Court should apply the more rigorous standard used by Highfields Capital Management L.P. v. Doe, 385 F. Supp. 2d 969, 975-76 (N.D. Cal. 2005).
The Court of Appeals stated that the more rigorous standard in the Highfields case required (in addition to the factors considered by the magistrate) that the court balance "the magnitude of the harms that would be caused to the competing interests" by their ruling. The Court held that because of the nature of Skywalker's speech (i.e. more political, religious or literary rather than commercial), the Highfields approach balances the parties' interests better than the Sony approach. The Court also found that evidence of copyright infringement does not automatically remove the speech at issue from the scope of the First Amendment.
The Court found that, to the extent that Skywalker's anonymity facilitates free speech, the mere disclosure of his identity is itself an irreparable harm and that the plaintiff can continue its case, in view of the fact that Skywalker has been participating in the case through his attorney. The Court quashed the subpoena.
It is possible that the Court would have reached a different result if Skywalker had not removed the manual from his blog because of a DMCA take down notice or if Skywalker had not been actively involved in the lawsuit. In any event, Skywalker remains anonymous for a while.
You will recall that we reported on a case styled Vernor v. Autodesk, which held that because of some "magic words", the distribution of used software was subject to a license and was not a sale and consequently, could be prevented by Autodesk.
Mr. Vernor (actually one or more of the multitude of entities that filed amicus briefs in the lower court, see here) sought an appeal to the U.S. Supreme Court but the Supremes denied cert on Oct. 3. This means that the ruling stands in the Ninth Circuit (Washington, Oregon, California, Arizona, Nevada, Idaho and Montana) and if the proper words are used, the "first sale" doctrine doesn't apply.
Because this makes the operation of e-Bay and others more difficult, look for further developments.
EA Sports is a video game maker that annually produces a game entitled NCAA Football. Ryan Hart was a college football player that played for Rutgers. EA Sports incorporated Mr. Hart's likeness into several versions of its video games, including matching his height, weight, home town, commonly worn arm band and helmet visor and other matters that pretty much matched Mr. Hart and his playing style at Rutgers. Mr. Hart filed a complaint seeking class action status for himself and other college football players similarly situated.
EA Sports filed a motion for summary judgment, alleging that EA's first amendment rights trumped any of the claims that Mr. Hart had, including New Jersey's recognition of a common law right to prevent unauthorized, commercial appropriation of names and likenesses.
The Federal District Court of New Jersey granted EA's motion and dismissed the complaint. In a long and detailed decision, the Court discussed several likeness cases including those involving Paris Hilton on a Hallmark card, Edgar Winters and his brother portrayed as giant worms in a comic book and the band No Doubt.
The Court relied on principles of copyright law and found that the defendant's use of the image was "transformative" and as such, was entitled to First Amendment protection that trumped any damages that the plaintiff had experienced. The Court conceded that EA licensed likenesses of pro football players and licensed colors and logos of college teams from colleges and paid for those, but refused to pay for likenesses of college players. They further conceded that this might seem "unfair" (You think?) but that the unfairness of the situation did not give rise to a different decision.
The Court found that a player of the video game could alter the player's likeness and playing attributes but that was not what was transformative. The transformative feature was EA's creation of the mechanism by which the virtual player could be altered.
So, EA Sports incorporates Mr. Hart's unaltered image in the game but provides a mechanism to alter it, so First Amendment rights triumph. "It's In The Game"
Court Reduces Oracle's Judgment Against SAP From $1.3 Billion (With a B) to $272 Million (With a M).
Once upon a time, SAP purchased a company called TomorrowNow. TomorrowNow apparently downloaded Oracle software thousands of time in an effort to get the software cheaply (free) and obtain some of Oracle's customers. Oracle sued and SAP did not contest the fact of the downloads but alleged that the damages to Oracle should be equal to the profits that Oracle would have realized from the pirated software. The Court allowed the jury to find damages based on a "hypothetical license" that would have existed between Oracle and SAP if Oracle allowed SAP to use the software in question. This allowed the jury to find damages in the amount of $1.3 billion, the largest copyright infringement verdict in history. However, today, in the U.S. District Court for the Northern District of California, the judge found that there was no evidence that Oracle would have ever granted such a license and that damages must be based on evidence and not speculation or guesswork. The judge then said that the judgment could be reduced to $272 million and if the parties could agree on that, then it would be settled. If they do not agree, then a new trial will be ordered.
It's an interesting world when a $272 million dollar verdict is considered a victory for the defense.
We have previously discussed an opinion issued by the Ninth Circuit, which found that the "Betty Boop" character was a "functional aesthetic component" of a product upon which it was printed and therefore, like embossed designs on toilet paper and red soled shoes, was not subject to trademark protection. We found the ruling and the method of getting to the ruling to be unusual and proposed that the Court could have reached the same result by addressing other issues actually before the Court and not caused heart attacks in the offices of companies that license logos.
We were not the only ones that found the ruling to be troubling and last week the three judge panel in the Ninth Circuit took the unusual approach of withdrawing the original opinion and superseding it with a new opinion. The new opinion makes no mention of whether the panel thought they erred in the original opinion nor of any of the firestorm of criticism that the opinion evoked. They merely took our suggestion (I'm pretty sure this blog was the driving force in causing this to happen) and found chain of ownership issues and other issues sufficient to allow them to remand for further hearings.
So, for the present, it is as though the original opinion never existed. The Betty Boop trademark issue is not solved for the litigants but logo licensors are temporarily happier.
You know our friends at Zediva, the entrepreneurs that used DVD players in a data center and DVDs they had bought to rent the DVDs and the players to individuals and stream movies over the internet to subscribers. We chronicled their launch and subsequent encounter with the legal system here and here. Zediva had thought their arrangement would be legally equivalent to renting a DVD and player to an individual in their home, a situation that is legally acceptable. They reasoned that the only difference was a little longer cord, i.e. the distance through the cloud from Santa Ana, California to the respective user.
The Federal District Court, Central Division, of California recently disagreed. In a decision that has been roundly criticized by some and lauded by others (no surprise there), the Court granted a preliminary injunction, which effectively shut down the Zediva enterprise. Their website now shows the following:
The Court reasoned that the Zediva service constituted a public performance and that the method of providing the movies constituted a transmission, both violations of the exclusive rights of a copyright holder. Consequently, the Court found that the plaintiff had shown a likelihood of success on the merits, a requisite of the granting of an injunction. Another requisite is the showing of irreparable injury. The Court solved this by reasoning that the provision of the movies by the unlicensed provider deprived plaintiff of its ability to control the use and transmission of their copyrighted works and deprived the plaintiff of revenue (the crux of the matter). The Court also decided in a rather conclusory manner that the balance of hardships weighs sharply in favor of the plaintiffs and the public interest is best served by the issuance of the injunction.
The Court seemed to think that some kind of physical act on the part of the user, such as recording on a DVR or physically inserting the DVD in a player owned by the user on the user's premises, was required to remove the transaction from the "public performance" and transmission arenas. Zediva maintained that this was a distinction without a difference.
This area of the law continues to evolve, although more slowly than the technology driving it. Although it looks like it probably will not happen, it would be helpful if Zediva were to proceed to trial on this so that we could get a more complete consideration of all the issues and some judicial instruction in this cloudy area (pun intended).
Trade secret law is not nearly as topical and sexy as some of the social media controversies we have been talking about lately, unless you are the one depending on trade secret protection.
First, a primer: If something has independent value, is not generally known or readily ascertainable by proper means and has been subject to reasonable efforts to maintain its secrecy, it can qualify as a trade secret under Virginia (and most other states) law. Software, in particular, is generally protected by a combination of copyright, trade secret and sometimes, patent law. That's the reason that software vendors have to have non-disclosure agreements before they can allow you to review their software and the reason that most software licenses restrict the people and entities to whom you (as licensee) can provide information regarding the software. That's part of the reasonable efforts to maintain the secrecy element in trade secret law.
The Fourth Circuit recently took up another of the elements, i.e. whether a compilation of publicly known processes combined in a way that is not publicly known or readily ascertainable can qualify for trade secret protection. In Decision Insights, Inc. v. Sentia Group, Inc., the Court said that matter was already decided in Servo Corporation of America v. General Electric Corp. 393 F.2d 551 (1968) where it was held a trade secret "might consist of several discrete elements, any one of which could have been discovered by study of material available to the public". In the Decision Insights case, there was testimony that although the contested part of the software was comprised largely of publicly known algorithms, the compilation and some of the methods used to cause the compilation to interact were not publicly known. The Fourth Circuit thought that this testimony was sufficient to overcome a motion for summary judgment and reversed and remanded for further consideration of this issue and the other issues applicable in a trade secret case.
It is important to note that the Court did not say that the compilation in question was a trade secret but merely that such a compilation could be held to be if all the elements are present.
This should eliminate (at least in Virginia) contentions that all parts of a formula or process have to be completely secret and unknown in order to qualify as a trade secret.
It seems like only last week (actually, it was) when we first talked about the Zediva launch, which allowed you to view streamed videos from the cloud via a DVD that you rent played on a DVD player that you rent. Of course, you never see or possess either, given that they reside somewhere in a Zediva leased data center.
As expected, the plaintiffs allege copyright infringement, specifically, the exclusive right of the copyright holder to publicly perform their movies.
Interesting times, these.
Zediva Tries To Beat Netflix To The DVDs By Invoking Same Doctrine That Will Make It More Expensive For Netflix.
The many avid readers of this blog will no doubt remember our in depth discussion of the "first sale" doctrine as it relates to the inability of Netflix to rely on such doctrine for the streaming of videos, since there is no "sale" involved. We surmised that this would increase costs because Netflix would have to license the videos from the copyright holders rather than just buy the DVD and rent it out.
Now, another service is trying to side step the issue and offer streaming DVD videos in a time frame well in advance of when Netflix can offer the video. Zediva went from beta to production last week and is offering streaming videos as soon as the DVD is available for purchase. Zediva's legal reasoning on this (we believe) is that they are buying the DVDs and physically taking delivery of the DVDs and actually playing them on a DVD player somewhere in their data center. The particular DVD and the player on which it is playing are leased to the subscriber for four hours, during which no other subscriber can access either that DVD or that player. The technology employed by Zediva allows that DVD and player to stream the video over the internet to the subscriber's device. So, according to Zediva, it is like renting the DVD and player and the player just has a really long cord (with the cord serving as a metaphor for the cloud). Surely, says Zediva, that must be allowed under the "first sale" doctrine. If DVD copyright holders take umbrage at this arrangement, they might say that the "first sale" doctrine requires physical transfer of the medium and "Don't call me Shirley". (gratuitous Leslie Nielsen homage)
The roll out of this bears watching. Zediva's website today says it is down while they get more capacity. Recently, another company thought they fit into an exception of the Copyright Act. ivi TV was retransmitting television broadcasts and claimed they were a virtual "cable company" and therefore entitled to transact their business under Sec. 111 of the Copyright Act, although they didn't get retransmission consent nor qualify as a cable company under the Communications Act. The US Court for the Southern District of New York granted a preliminary injunction that ceased their operation until further adjudication.
As new technology challenges the present state of the law, we close this post as we almost always do. Stay tuned.
Normal people who are not intellectual property lawyers (assumes that some normal people are intellectual property attorneys, a hypothesis not yet proven) would read the title of this post essentially as follows: Blah, blah, blah, Betty Boop, blah, blah, blah, blah.
However, what it means in its simplest form is that the Ninth Circuit Court of Appeals in California held that a t-shirt, purse, or handbag containing the image of Betty Boop (a cartoon pinup with "a large round baby face with big eyes and a nose like a button, framed in a somewhat careful coiffure, with a very small body"), was utilized as a "functional product" as opposed to a trademark, and therefore would not be subject to a claim of trademark infringement.
The Ninth Circuit's opinion has caused some head scratching and criticism. The lower Court denied the Plaintiff's (the purported owner of the Betty Boop character) claims based on a determination that the Plaintiff had failed to show proper chain of title to the copyright ownership of the character and failed to meet its burden of proof of the existence of a federally registered trademark.
The Plaintiff appealed on these issues. The Ninth Circuit could have disposed of this case by deciding any number of issues, e.g. whether cartoon characters are protectable as trademarks, whether Plaintiff owns a registered trademark in Betty Boop’s image and name, whether Plaintiff owns a common law trademark in “Betty Boop”, whether the fractured ownership of the Betty Boop copyright precludes Plaintiff from asserting a trademark claim or whether Defendants infringed Plaintiff's marks. However, the Court opted to not take the common approach of deciding the issues before them and stated: "...all of these arguments are mooted by controlling precedent that neither party cited: International Order of Job’s Daughters v. Lindeburg & Co.633 F.2d 912 (9th Cir. 1980)." pg. 2778 (Emphasis added)
The Court held that none of the issues mentioned above is as important as the proposition in the Job's Daughters case and held: “The name and [Betty Boop image] were functional aesthetic
components of the product, not trademarks. There could be, therefore, no infringement”.
The fact that the Betty Boop character was readily visible, was not held out as officially licensed, and no evidence of actual confusion was provided led the Court to conclude that the character was what the buyer really wanted and therefore was a functional aesthetic component.
A strict application of this case could lead one to conclude that an outline of a Longhorn steer plainly visible (is there any other way?) on a tee shirt, that's not held out as officially licensed would not be infringing on a trademark. This would threaten the collegiate and professional licensing schemes that abound and would cause the University of Texas (and many other institutions) a great deal of heartburn.
A few things for your consideration:
1. The White House's proposed budget includes the authority for the USPTO to charge a surcharge on patent applications. The proposed budget would provide $2.7 billion for fiscal 2012 with one of the stated objectives to reduce the backlog of 720,000+ applications.
2. By Executive Order 13565 of February 8, 2011, the White House established two I.P. committees. One is the Senior Intellectual Property Enforcement Advisory Committee, which will facilitate the formation and implementation of each Joint Strategic Plan, which will be be developed by the other committee established, the Intellectual Property Enforcement Advisory Committee. As is evidenced by their names (i.e. Senior and not Senior) the Senior Advisory Committee will be comprised of cabinet level members or their designees and the Enforcement Advisory Committee will be comprised of representatives from the USPTO, DOJ, Department of Commerce and others.
3. Health and Human Services through its Office for Civil Rights has assessed its first ever civil penalty for violation of HIPAA. The penalty was $4.3 million against Cignet Health of Prince George’s County, Md. Cignet failed or refused to provide health records to at least 41 patients and then apparently stonewalled the patients and requests from the Office for Civil Rights to the extent that the Office for Civil Rights obtained a default judgment against them. Cignet also apparently was uncooperative in the investigation into this affair. The penalty was $1.3 million for failure to provide access to the records and $3.0 million for being uncooperative.
4. Microsoft was successful in getting a patent infringement suit originally filed in the Eastern District of Texas transferred to the Western District of Washington on the grounds of forum non conveniens. For some strange reason, there are a lot of patent infringement suits and class actions filed in the Eastern District of Texas. The plaintiff here, Allvoice, was an U.K. company with an office in the Eastern District of Texas but with no employees there or anywhere in the U.S. Calls there were transferred to their office in the U..K. Allvoice was incorporated in Texas but had done so 16 days before the suit was filed. Forum shop much? The Circuit Court of Appeals issued a writ of mandamus compelling transfer to Microsoft's home court even though Microsoft had also petitioned to move the case the Southern District of Texas.
UMG sends unsolicited, promotional CDs to potential reviewers, music critics and radio programmers to try to promote the sale, play and mention of such CDs. UMG does not charge for the CDs but it does put notices on the CDs.
One such notice reads:
"This CD is the property of the record company and is licensed to the intended recipient for personal use only. Acceptance of this CD shall constitute an agreement to comply with the terms of the license. Resale or transfer of possession is not allowed and may be punishable under federal and state laws."
Another, more terse notice reads:
“Promotional Use Only—Not for Sale.”
Defendant, Augusto, bought some of these CDs from the recipients and attempted to sell them on eBay. UMG sought to stop this by claiming copyright infringement and claiming that the language above and the acceptance by the recipient constituted a license rather than a sale under the provisions of Vernor v. Autodesk, which we discussed in length here. Therefore, the recipients could not sell the CDs without violating the copyright holder’s right of exclusive distribution.
Mr. Augusto claimed that the unsolicited delivery of the CDs constituted a “sale” for the purposes of our old friend the “First Sale Doctrine”. See our earlier discussions of this doctrine here, here and here.
The Court agreed with Mr. Augusto and stated that the mere receipt of the CDs without some other kind of action did not constitute an assent to the terms of the “license” and therefore, it had to be a sale. In addition, the Court also relied on the “Unordered Merchandise Statute” 39 U.S.C. § 3009(a), (b) (2006), which states that unsolicited merchandise may be treated as a gift. Hence, First Sale Doctrine applies and subsequent sales can be made without claims by the copyright holder. The Court’s opinion can be found here.
Lessons to be learned here are that in order to come under the license standards set out in Vernor v. Autodesk, the right kind of language has to be present and some overt act of acceptance of such language has to be displayed.
You are now free to buy those promotional Lady Gaga CDs you’ve had your eye on.
"Pop quiz, hotshot!" (Gratuitous and completely unnecessary "Speed" reference). What do Netflix, Omega watches and used software programs on CD-ROMs have in common?
Answer: They are all affected substantially by the "First Sale Doctrine". Those of you that routinely devour the content of this blog will no doubt remember our earlier discussion of such doctrine as it related to the right to resell a disc containing a software program. For a quick refresher, the First Sale Doctrine is used as an exception to copyright protection and it provides that when the first sale of a copyrighted item occurs, subsequent sales, gifts or loans are not restricted by the rights of the copyright owner. This doctrine enables libraries, used book and music stores and art galleries to function.
So, how are Netflix, Omega watches and used CD-ROMs impacted by this rule?
Netflix's brilliance was the enabling of prompt delivery by mail of DVDs. Netflix would buy a large number of DVDs of a particular title from the distributor, usually at at discounted price and mail them out to subscribers. Netflix could do this free of any copyright claims because of the First Sale Doctrine. Netflix also was quick to recognize the utility and convenience of providing such material in the form of streaming video through Roku, XBox and other platforms. The problem arises in that streaming video is not subject to the First Sale Doctrine because there is no "sale". Therefore, Netflix must license the streaming rights from the studios and this may turn out to be very expensive. Reports are that some studios are asking as much as $16 million per title for a two year license. There is no indication whether these are new titles only or how this will shake out in the market place in the long run as Netflix seeks to dominate the streaming market. The only sure thing is that it is a markedly different business model for Netflix. They can avoid the postage costs and some of the costs of maintaining mailing centers as users transition to streaming. However, the costs of licensing may negate that. This could prove to be interesting.
In the case of Omega watches, Costco bought a bunch of Omega watches outside the U.S. at a discount, imported them and began selling them at a price lower than Omega sells them domestically. Omega sued Costco alleging copyright infringement. Costco replied that they were not copyrightable and even if they were, the First Sale Doctrine applied. Omega said, "Not so fast, Costco" (or words to that effect), "there is an image of a globe on the back of each watch that is half a centimeter in diameter and that gives us copyright rights". Costco, in a haughty rejoinder, said "Well, so's your Mom and we can do this because of the First Sale Doctrine" (I made up the Mom part). Omega then pointed out that the Copyright Law states in pertinent part that the First Sale Doctrine set out in the copyright act applies only to copies "lawfully made under this title" [Section 109(a)]. Omega said since the watches were made outside the U.S. they were not "made under this title" and hence no First Sale Doctrine. The Ninth Circuit agreed and an appeal was taken to the U.S. Supreme Court. Justice Kagan recused herself because she had filed an amicus brief in the lower court in her role as Solicitor General and the remaining Supremes split 4 to 4, which lets the lower court ruling stand, i.e. Omega wins for now.
As we pointed out in the earlier post referenced above, a court held that if a CD-ROM contained a software program that was licensed and not sold, then the First Sale Doctrine also does not apply and resale of the used discs can be prevented under the copyright provisions. The case was Vernor vs. Autodesk and is discussed here. The result: You can't sell a used disc if the contents are licensed and not sold.
So, you may not be able to get inexpensive streaming movies, buy a cheaper "gray market" watch or resell that disc you bought at the garage sale down the street. All this because our friend, the First Sale Doctrine, is not available in these situations.
It is probable that these are not the last words in any of these situations, so as we usually do to wind up these posts, we just say: "Stay tuned."
This notice did not appear on our site (yet), thankfully, but about 70 sites were hit with this over the holiday weekend.
We recently posted on the pending legislation called COICA and noted that the forces that be were quickly drawing lines in the sand and standing rather firmly on their side of the line. Interestingly, Homeland Security and Immigration and Immigration and Customs Enforcement supposedly obtained warrants and seized the domain names of these sites that they alleged are infringing, either by committing copyright infringement or selling counterfeit items. As noted by this article in Techdirt, the seizure was only of the domain names and not of the equipment or other assets so some of the sites merely changed their high level domains (e.g. .com to .info), put out the word on Twitter and continued business.
Some people are worried by the apparent lack of due process in this matter and the potential for abuse. Others are worried by the level of infringement and counterfeiting and the loss of revenue as a result. This would call into question the need for COICA if HSA and ICE already possess these powers. There should be a serious discussion of this whole process as the COICA legislation progresses.
Combating Infringement, Defeating Piracy, Stifling Free Speech or Violating Due Process? Depends On Whom You Ask.
Last week, the Senate Judiciary Committee, in an unusual show of bipartisanship (obviously caused by the evident and overwhelming support of the electorate in the midterm elections for more copyright legislation), voted unanimously to refer out of committee the "Combating Online Infringement and Counterfeits Act" ("COICA").
So, is this merely a tool to give prosecutors an expedited process to combat the evils of online infringement and piracy or is it seeking to censor the internet and create a blacklist of websites and consequently stifle the free expression of ideas?
Opting for the first view are the owners and protectors of copyrighted material, like the Motion Picture Association of America (MPAA), the Recording Industry Association of America (RIAA),
Major League Baseball, the NFL, Nintendo, Viacom and the U.S. Chamber of Commerce.
Coming down on the other side of the fence are most of the bloggers in this area of the blogosphere, the Electronic Frontier Foundation and a group of law professors who wrote this letter to the Judiciary Committee warning that the legislation was potentially unconstitutional.
What are the controversial provisions of this alternatively praised and vilified legislation? (If your Ambien prescription has run out, you can read this and achieve the same result.). For those of you who have Ambien, this is the "short" version:
- If an internet site is otherwise subject to forfeiture under statutes prohibiting infringement, or
- Is "dedicated to infringing activities" (primarily designed to, is marketed as or has no real use other than to offer infringing or counterfeit goods or services), and
- the internet site engages in such infringing activities and when taken together, such activities are central to the activity of the site or the sites accessed through a specific domain name, then
- the Attorney General can commence an "in rem" action against the site, get an injunction and require the domain name registrar to suspend operations of the domain name and the internet service provider to "take technically feasible and reasonable steps...to prevent a domain name from resolving to that domain name's Internet protocol address".
- The in rem action can be brought in any judicial district where the domain name registry for at least one of the involved sites is located or in D.C. if the domain name is not registered domestically.
- Notice of this action is sufficient if notice is sent to the postal and e-mail address that the registrar has for the web site and notice is published as directed by the court (no indication as to what this might be). It is therefore possible that the web site owners would not have any notice of the action until it is well under way.
- The Attorney General may then obtain an order, which can be served on the domain name registrar or the registry and the domain name registrar or registry can suspend operation of and may lock the domain name.
- The injunction may also be issued against any internet service providers who can then suspend the operation of any transmission to or from the subject website. The act provides them legal immunity for doing so.
The Act seems to be suspect in that it could amount to prior restraint of free speech and could be issued before a final court determination of actual wrong doing is obtained. Or, it could be that the courts find that this is a necessary tool in the battle against internet anarchy and lawlessness.
There is much yelling and cursing and accusing yet to be done before this becomes law. Stay tuned.
As of late, the issue of Copyright in the fashion industry has been increasingly in the news. With the recent proposal of "new" copyright laws by New York Senator Charles Schumer, the decision of whether or not to provide broad copyright protection to fashion designers is being revisited. The issue was most famously approached, when in the 1930's the "Fashion Originators' Guild" started a cartel requiring all retailers to purchase from the Guild. If retailer sold a knock-off they would receive a "Red Card" restricting other Guild members from selling to that retailer. The Guild was broken up by the federal government, but that didn't keep certain members from attempting to change federal copyright law to put their oligopoly back in place. They failed.
Many attempts were made afterwards, and in 1998 a significant change was made - the Vessel Hull Design Protection Act was enacted. The what? Just bear with me. This act was passed by Congress to protect the designers of the hulls of boats. Hulls are expensive to make, involve safety issues, and were found to be worthy of copyright protection. However, when drafted the Act's language appears to be an attempt to protect "original designs of a useful article" but the definition of "useful article" was limited to the hulls of boats. The proposed bill by New York Sen. Schumer (NY seems to make more sense when you think of where all the designers reside), just includes "Fashion Design" as a definition to "useful article," incorporating a broader range of protection to designers.
Intellectual property rights (copyrights, trademarks, and design patents) are, and have been afforded to the designers of fashion. However, designers are pushing for more protection over the goods they produce. Currently, a copyright protection applies "only if, and only to the extent that, such design incorporates pictoral, graphic, or sculptural features that can be identities separately from, and are capable of existing independently of, the utilitarian aspects of the article." 17 U.S.C Section 101 (under "Pictoral, Graphic or Sculptural Work"). A good example of this would be a famous painting printed on a shirt. The painting will be protected on it's own, whether or not the painting is used on its own, a shirt, a jacket, or as wallpaper. This restricts most general designs from receiving copyright protection. Trademarks provide a protection to the goods in such a way that will tell the customer from whom they originated. This either comes in the way of a brand name tag or logo attached to the article of clothing, or by a design that is so unique that the consumer knows it was developed by a certain creator (think Adidas and the three stripes along the sleeves of their apparel). Design Patents are used in certain areas of creation, but cause great difficulty for a designer. The technical requirements needed to obtain a design patent, which include non-obviousness and novelty, are difficult to meet, not to mention the cost and the time. If the user can afford the patent, the time spent often in the process ends up being several months to years causing the designer to miss out on the trend.
You can't blame the designers for pushing for stronger protection, they are self-interested people who want to protect their creations (just like most of us). However, if enacted, think of some of the potential effects on the industry:
- Copyright litigation would likely go through the roof (passing the cost on to the consumer),
- Designers would have less incentive to design clothes at the current light-speed rate in an attempt to influence fashion trends , and
- Less expensive in-style clothing would be difficult to acquire (say good bye to clothing stores like Forever 21).
All in the name of protection of large design companies. As an attorney dealing in intellectual property law, I find myself struggling to make sense of the of this proposed law. I understand the need for copyright on lyrics, movies, unique inventions and even drugs, but with clothing there are only so many combinations one can come up with. Shirts are going to have two sleeves, pants are going to have two leg holes, and there is not much we can to change the overall appearance of a tee-shirt. Many in the fashion design market have discussed how the industry thrives because of the lack of copyright regulation, and as one who purchases discount everything, I hope those designers are in the majority. Copyright law has a place in design protection, but if it infiltrates the fashion industry, we might be happy to be "soo 2009"!
On September 10, the Ninth Circuit Court of Appeals in Seattle decided a case styled Vernor vs. Autodesk, Inc. No. 09-35969 (D.C. No. 2:07-cv-01189-RAJ). A copy of the decision may be reviewed here.
Lining up on one side of this dispute were software developers and lovers of copyright protection. One the other side you have libraries, eBay, reseller of used books, video games, CDs, DVDs, etc.
The decision held that if a copyrighted work was distributed under a license, as opposed to being sold, then the licensee or any subsequent possessor of the copyrighted work could not use the “first sale doctrine” or the “essential use doctrine” as a defense to an action for copyright infringement.
Commenters who opt for the position taken by the resellers and eBay have roundly decried this decision, calling it “a major blow to user rights” by the use of “magic words” . Others have called it the “right decision for the wrong reason” and “an apparent gutting of the so-called first sale doctrine”.
The facts of the case are as follows:
Autodesk licensed copies of its AutoCAD software Release 14 version to its customer Cardwell/Thomas & Associates, Inc. (“CTA”). The licenses were part of a settlement of a claim by Autodesk of unauthorized use by CTA. CTA later upgraded to Release 15 for a substantially discounted price. The license governing Release 14 required destruction of copies of upgraded versions of the software with proof of destruction to be furnished to Autodesk upon request. Instead of destroying the copies, CTA (perhaps in the payback mode?) sold them at an office sale along with the handwritten activation codes necessary to use the software. Mr. Vernor, the plaintiff in the instant suit bought several copies of the software from CTA. Mr. Vernor is an eBay power seller and promptly began marketing the software on eBay. In a series of instances, Autodesk filed a DMCA take down notice and eBay canceled the auctions. Vernor filed counter-notices and Autodesk didn’t respond in any instance. The sales went forward. After about four of these DMCA dances, eBay suspended Mr. Vernor’s account because of the repeated claims of infringement. Mr. Vernor had previously sold over 10,000 items on eBay and because of the suspension of his account, he was unable to sell on eBay for over a month.
Mr. Vernor, violating the “let sleeping dogs lie” maxim, filed a suit for declaratory judgment in 2007 asking that the court declare that he was protected under the “first sale” doctrine. Autodesk moved for summary judgment and the district court denied the motion and found that Vernor’s sales were non-infringing because of the first sale doctrine and the essential step defense. Vernor v. Autodesk, Inc., 555 F. Supp. 2d 1164, 1170-71, 1175 (W.D. Wash. 2008). Autodesk appealed from that decision.
The first sale doctrine is an affirmative defense to copyright infringement that allows owners (significant distinction under this case) of copies of copyrighted works to resell those copies. Hence, the ability to resell used books.
The essential step defense is also an affirmative defense in the software arena that states that if copying of a software element is necessary (i.e. an “essential step”) in the use of the software (such as copying a program to a computer’s RAM upon loading), then that copying is not an infringement.
Both the first sale doctrine and the essential step doctrine were first espoused by courts and then later included in federal statutes.
As indicated above, the court’s ruling hinged on whether the transfer of the software was a license or a sale.
To make that determination, the court considered the following issues:
“First, …whether the copyright owner specifies that the user is granted a license.
Second, …whether the copyright owner significantly restricts the user’s ability to transfer the software.
Finally, …whether the copyright owner imposes notable use restrictions.” Vernor at page 13878.
The court stated that none of these issues is dispositive, in and of itself, but the totality of the arrangement must be considered.
Applying those considerations to the matter at hand, the court found that Autodesk:
1. Retained title to the software;
2. Stated that the license is nontransferable and the software can not be sublicensed or leased without Autodesk consent;
3. Restricted use of the software to the Western Hemisphere;
4. Prohibited modifying, translating or reverse engineering the software;
5. Prohibited removing any proprietary marks from the software;
6. Prohibited defeating any copy protection devices imbedded in the software; and
7. Provided for termination of the license upon the licensee’s unauthorized copying or failure to comply with other license restrictions.
The court found that these restrictions required that the transaction be a license as opposed to a sale. Therefore, CTA was a licensee rather than an owner and it was not entitled to resell its used Release 14 copies under the first sale doctrine. Consequently, Vernor did not receive title and could not pass ownership on to others. Because Vernor was not an owner, his customers also were not owners and when they installed the software on their computers and necessarily copied it to their RAM, they infringed and were not entitled to assert the essential step doctrine.
Good decision? It seems right under the law, the provisions of the license agreement and the facts in this case. However, I must admit some bias as most of my life has been spent representing licensors. It obviously presents problems for the secondary market in all used copyrighted goods. Will the owners start inserting “magic words” and turning everything into a license? The court recognized the problems and invited Congress to statutorily change if it so desired. I’m sure Congress will get right on that.
The court remanded the case for consider of other issues including a claim that Autodesk misused its copyright. This case is probably not over and may have taken on a life of its own.
Like the Frankenstein monster.
Consider this abbreviated time line:
November 5, 2007 - Google, T-Mobile, HTC, Qualcomm and Motorola announce the release of Android and announce the creation of The Open Handset Alliance comprised of 34 companies that will free the mobile world of all restrictions (the last part is made up). Nowhere in the announcement does Java get mentioned.
Same day (almost like they knew it was coming) - The Chairman and CEO of Sun (possessor of Java) heartily congratulates Google et al on the release of Android and hails the salutary effect it will have on the Java community. The blog entry goes out of its way to call Android a "Java/Linux phone platform" and "a Java based platform".
April 20, 2009 - Oracle buys Sun. In the press release announcing the sale, Oracle calls Java "the most important software Oracle has every acquired."
August 12, 2010 - Oracle files suit against Google alleging "In developing Android, Google knowingly, directly and repeatedly infringed Oracle's Java-related intellectual property. This lawsuit seeks appropriate remedies for their infringement."
Now what happens? Google will claim that they aren't using Java but built their own version of this platform called Dalvik using approved clean room methods and therefore haven't infringed on anything. Google hasn't filed an answer yet and probably won't for some time. Then the fun will start. This has the potential to be a very visible and influential suit with ramifications for years to come. Google is not likely to be the last company with Defendant after their name in this matter. There are millions and millions of devices with Android running on them. Plus it involves some heavyweights.
Of course, Oracle's Larry Ellison is involved. He has some repute in the high tech world.
Oracle's legal team in the case includes the mega firm Morrison and Foerster (whose domain name proudly is "mofo") and David Boies, a well-known attorney who represented the U.S. Justice Department in its antitrust action against Microsoft. He also represented former Vice President Al Gore in the 2000 Florida recount battle and SCO in their 2003 suit against IBM over Linux. He also was recently involved in the Prop 8 battle in California, so he wins some and loses some.
So now you've chosen your entity, it's been incorporated, you have startup capital and are up and running, you've spent thousands of dollars in creating a logo, branding, and marketing. Things are going great, and then one day you are hit with a cease and desist letter stating that you are infringing on another company's trademark because the name you are using is confusingly similar to the other company's name. Now you are not only in danger of being sued, but you've just wasted thousands of dollars and many months of hard work on a name and brand you can't even use. This is just one illustration of how important it is to assess as early as possible the intellectual property (IP) landscape of your company. Three questions every new business owner should ask: "What IP does my company have?", "How do I protect that IP?" "Am I in danger of infringing the IP rights of another?" This post will give a summary of the main types of intellectual property, how to protect IP, and how to avoid infringement. This is just a summary and is no means comprehensive. Every new business owner should consult with an attorney about their IP issues.
The four main types of IP: 1)Trademarks 2)Copyrights 3) Patents and 4)Trade Secrets.
Trademarks allow a company to easily distinguish itself in the marketplace in the minds of consumers. A well known trademark is often one of a company's biggest assets. Trademark law gives a company the exclusive right to use a distinctive mark used to identify its goods or services. It allows for a company to develop a brand in the marketplace without fear that another company will cause a "likelihood of confusion" by using a similar mark. Trademarks do have "common law" protection under federal law and the law of most states; meaning that you do not have to register to have protection. But registering your distinctive mark at the federal and state level provides a number of benefits. Registering serves as constructive notice that your mark is in use, it makes it easier to prove your case in court, and it gives you protection in a far greater area. Prior to registration, the mark should be followed by "TM" for trademarks and "SM" for service marks.
Not all names are available for trademark protection. The mark must be sufficiently distinctive. The level of distinctiveness depends on the context it is used. Generic or common terms are not protectable if they are used in the area they describe. For example, "Apple" is protectable when used with computers, but would not be protected if the company sold fruit. Marks can't be overly descriptive either. For example, "Eye-Care Center" would not be protectable for an optometrist's office. Suggestive marks have a better chance of obtaining protection, but are not perfect because they could be seen as too generic/descriptive. For example, "America Online" is suggestive of the services it provides. The best choice for a protectable mark would be an arbitrary or fanciful term. (Think "Yahoo!" and "Google") It should be noted generic or descriptive marks can become protectable through their use. A mark can obtain "secondary meaning" through its extensive and continuous use in commerce to such an extent that it has achieved the required level of distinctiveness.
Picking a distinctive mark is just half the battle. You must also ensure that you are not using a mark that infringes another company's rights. The basic test the courts use when determining if a mark is infringing is "likelihood of confusion" in the minds of consumers. There are thirteen factors courts consider when determining likelihood of confusion. (Known as the "DuPont Factors") You should search extensively for similar marks on the USPTO website and consult with an attorney before deciding on your mark.
Copyright law protects original works of authorship fixed in a tangible medium of expression. Obviously, this includes many areas: literary works, musical works, dramatic works, photos, paintings, sculptures, architectural works to name a few. Business that don't produce these types of works should still consider whether they have copyrightable material. Marketing materials, training materials, or other works that the business creates during its operations could potentially be copyrightable.
Anytime a business contracts to create something new it should consider the copyright involved. Just because someone creates something for a business doesn't necessarily mean the business own it. This is a common issue in "works for hire" cases, and every company should address ownership of the copyright when contracting for works made for hire.
Similar to trademarks, copyrights can be registered, but they do not have to be. Copyright protection exists from the moment of creation. But like trademarks, there are a number of benefits from registration. It is much easier to prove infringement if the copyright is registered, there are substantial statutory damages as well attorney fees available to the registered copyright holder. Copyrights are relatively easy to register compared to patents and trademarks, but registration can be deceptive in its simplicity. Consulting with an attorney is recommended.
Patent law was historically centered around companies engaged in research in development. That is no longer the case since what is patentable has greatly expanded over the last few decades due to court decisions. For example, business methods and computer software were once considered unpatentable before changes in the law. Unlike other IP, patents are only protectable once they have been approved by the USPTO. However, when resolving patent disputes, the United States is different from almost every other country in the world in that it follows a "first to invent" system instead of a "first to file" to determine the proper patent holder.
There are three types of patents in the US: utility, design, and plant patents.
- Utility -- new or useful machines, articles of manufacture, compositions of matter, and processes;
- Design -- new original and ornamental design for an article of manufacture;
- Plant -- new varieties of plants
Patents are also different from other forms of IP in that it doesn't automatically give the owner the right to use the patent. It merely prevents unauthorized use of that patent. If the owner of a patent can prove infringement, the owner is entitled to injunction to prevent further infringement and damages.
Obtaining patent protection is an expensive and time consuming process. Many patents take years to prosecute, and can be very complex. A patent agent or patent attorney should be consulted. The USPTO will only approve a patent if it is novel, useful, and not obvious. Because of the time and cost involved, business owners should carefully consider whether or not to pursue a patent.
Finally, it must be noted that a business can infringe a patent (as well as copyright and trademark) unknowingly and still be subject to damages. Every business owner should carefully examine the existing IP landscape before proceeding into new ventures.
TRADE SECRET LAW
Trade secret law is extremely important because every business, especially new businesses, have information that it feels gives it an advantage over its competitors in the marketplace, and it doesn't want them to have knowledge of the information. Under the Uniform Trade Secret Act, trade secrets are defined as:
information, without regard to form, including, but not limited to, technical, nontechnical, or financial data, a formula, pattern, compilation, program, device, method, technique, process, or plan that (1) derives independent economic value, actual or potential value, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
To protect trade secrets, owners must keep them "relatively secret" and exercise reasonable efforts under the circumstances to maintain their secrecy. What is reasonable obviously depends on the context, but some common measures include: restricting access to confidential information, having those that see the information sign confidentiality agreements, using passwords and encryption to protect digital information.
A Business should also take measures to ensure that it is not misappropriating trade secrets. When a new business begins to bring officers, managers, and employees on board, it should make clear that they can't bring the trade secrets of others with them. Furthermore, the business should ensure that the employees are not subject to confidentiality agreements or noncompete agreements to prevent a breach of those agreements.
These are just a few of the IP issues that businesses confront. IP law is a vast, complex area of law that can be a minefield for the unwary. Make sure you do your research and consult with an attorney so that your business can thrive and avoid unnecessary pitfalls.
The US Copyright Group is a group formed by a lawfirm in Leesburg, Virginia, which according to their website, is designed to "Save Cinema" from the evils of illegal downloading. We have mentioned them before in relation to their attempts to involve the internet service providers. They have filed many lawsuits, primarily in the DC Federal District Court, against multiple defendants, mostly described as "John Does" since they have not as yet definitively identified the defendants. In a couple of the suits involving the movies The Steam Experiment and Far Cry, they have provided for 2,000 and 4,577 defendant Does, respectively. They propose to obtain the identities of the alleged infringers through discovery in the suits by getting the "infringers' identities through ISP subpoenas", again according to their website. They advertise that they do all of this on a contingent fee basis.
Although it has not been specifically determined yet, it is unlikely that all of the alleged defendants live in the DC area, so it would be very difficult for each defendant to appear and defend and conversely, it would be very difficult for each defendant to be sued individually in the area where they live. You can see why the US Copyright Group has tried to join all defendants in a single case.
The Rules of Civil Procedure for the DC Court states that defendants can be joined in a single suit if the actions giving rise to the suit arose from the "...same transaction, occurrence or series of transactions or occurrences..." and a question of law or fact common to all the defendants will arise in the case...".
The two cases mentioned above have found their way onto the docket of Judge Rosemary Collyer and she has decided to rule on the issue of joinder of all the defendants. She has given the plaintiffs until June 21 to show cause why all but one defendant in each case should not be dismissed due to misjoinder. This could result in the dismissal of 1,999 Does in one case and 4,576 Does in the other. Hence the bad rhyme in the title of this post.
A couple of public interest groups, including the ACLU, have filed amici curiae briefs on the side of the defendants. The ruling by the judge in this case will have major ramifications on the nature of these types of cases going forward.
Incidentally, The Steam Experiment's plot line is "A deranged scientist locks 6 people in a steam room and threatens to turn up the heat if the local paper doesn't publish his story about global warming" and Far Cry is based on a video game. This is not a commentary on the value of the thing allegedly stolen.